Agency Vs procurement : The quantification gap

Prior to an annual media house negotiation meeting a few years ago , a marketing client shared some sales data with me to make the point that it was more important for her brand to be on-air than which specific TV stations it was on While that was just her being the excellent hard-nosed negotiator that she is and using a somewhat incomplete picture as a negotiating chip , it was nonetheless a perspective.  

I'm reminded of it today when there's unprecedented pressure on agencies' remuneration. The  focus on the advertisers' side seems to be on procurement while agencies point towards the value they bring to the table both from 'hard' strategy and from 'soft' passion.

It's increasingly becoming less of a contest  - procurement is the order of the day. The rule-proving exceptions are becoming rarer.

There was interesting news last week (read here) about Pepsico eliminating its procurement department but to me , the nub lay in the last para of the piece : removing a department is not the same as removing its function , or at least the approach. 

The whole difficulty arises from what is fundamentally a quantification gap :  the difference in perceived value between the agency seller and the procurement buyer. (Ref. diagram below).  Both sides basically agree on the value of advertising, the very tangible difference between 'on' and 'off' (it's why they're sitting across the table in the first place !) The disagreement is about the various scenarios of 'on'. From a stated negotiation position at least, the advertiser sees diminishing marginal value between , say, a 'low strategy' media plan and a 'high strategy' one. 

Unfortunately, it's a gap which is exceedingly difficult for the agency to quantifiably equate with a fair price even as it knows better. (The unwillingness of procurement to be persuaded is a  non-factor here : it's their job not to be !)  It has to in effect  manage a particularly nasty strain of the  'which-half-works' virus   even as that virus has already been declared invincible ! As tough ones go , this one is a whopper. But it's imperative to keep trying.  Perhaps a good starting point would be to size up the challenge for what it is and work forward from there.   

Even then, the quantification gap problem is unlikely to be solved soon , if at all ! More likely is  an evolutionary change of the entire ecosystem - even perhaps less gradual than supposed.  Given the economics of the business, something has to give. 

One hopes both parties in their evolved form - agency and advertiser including , yes, procurement ! - are at a better and fairer place of  value when that happens.